Credit Cards, a Brief History
| Created: 10/01/2008 |
We all use this website because we have an interest in credit cards and their use, but how much do we know about their history? Read on to learn about how the UK consumers' love affair has developed since Barclaycard introduced the first card to the UK market over 40 years ago.
Early Consumer Credit
The first UK credit card was launched on June 29th 1966, but the very first consumer credit service dates back to 1880 when the Provident Clothing Group introduced vouchers to enable consumers to buy clothes from a defined list of shops. After making a purchase using the vouchers, the consumer would pay the Provident Clothing rep when he visited their home at a later date. These vouchers were the forerunner of today's credit cards because (a) they enabled the customer to buy using a voucher and (b) the consumer benefited from revolving credit - just like a modern credit card. Provident is still on the go today as a provider of home-based consumer credit under the name Provident Financial. They also own the Vanquis Credit Card brand which is well known for their very high APRs.
In the early years of the 20th Century various US organisations introduced forms of credit, some of which used at a type of credit card. Ones used by Western Union and US General Petroleum were actually made of metal but their use was very limited: the former being for privileged customers only and the latter being just for the purchase of petrol and related services.
The first plastic
We have to wait until 1950 until we come across a more familiar name, when Diners introduced the Charge card in the US. This was intended to allow diners to eat at any of 27 restaurants in the New York area and to be able to charge the bill to the card. The initial membership was rather limited with 200 members, but this grew to 20,000 within a year. In 1962, Diners launched their charge card in the UK (merging with an earlier UK based card) and American Express followed a year later. Things were beginning to hot up.
In 1965 BankAmerica licenses its card to other banks, thus becoming the first credit card scheme. Its name was changed to the more familiar "Visa" in the 1970s.
The first UK Credit Cards
On June 29th 1966, Barclays launched the first Credit Card in the UK with their now famous Barclaycard brand. Although initially for use in the UK, its use was extended to a limited number of other countries over the following 6 years (Malta, Gibraltar, South Africa and France).
In the same year (1966), Mastercard was formed and 3 years later the organisation formed an alliance with other European banks to launch the Eurocard. This really paved the way for using credit cards abroad.
In 1972, NatWest, Royal Bank of Scotland, Lloyds and Midland Bank form a joint company to issue cards under the Access brand. Due to its extensive advertising it became well known as "your flexible friend".
Important Consumer Protection
The Consumer Credit Act of 1974 brought in some important changes to protect the consumer. Section 75 of the Act allows the consumer to claim money back from the credit card company, where goods purchased using the card, either don't arrive or turn out to be sub-standard. Section 84 of the same act also limits the consumer's liability to £50 for any purchases made when the card has been stolen.
A Maturing UK Market
In the 1980s, Banks started issuing both Visa Cards and Access cards for the first time. Access as a brand ended when the consortium issuing them broke up and Mastercard started playing a greater role in the UK. The 80s also saw the widespread introductions of ATMs and the introduction of the Debit card.
The 1990s saw increased competition due to the influx of many US cards into the UK market and card issuers became more sophisticated in their targeting of niche markets e.g. the introduction of affinity cards and the issuing of status symbol cards such as Gold and Platinum. By the end of the decade, internet banks such as Egg and Smile joined the fray and half the UK adult population now had at least one credit card.
The fight for customers
From 1999 onwards, the increased competition from the new entrants to the market forced the card issuers to be more creative when it came to winning and maintaining customers. Annual card fees all but disappeared, cashback on purchases became widespread and low introductory rates enticed new customers to use credit cards for short term borrowing instead of personal loans. The introduction of 0% Balance Transfer offers created new breeds of credit card users such as rate-tarts
Today's Credit Card Market
The major change of recent years has been the introduction of Chip and Pin technology from 2004 onwards, more than 10 years after it was introduced in France. There is still intense competition in the card market, but lenders seem to have retrenched somewhat. In the last few years almost all card issuers have moved away from high levels of cashback on purchases and there has been a marked increase in the number who now charge fees for Balance Transfers.
The most startling thing of the last 40 years, however, is how cards (debit and credit) have become the standard way of paying for most goods and services. 2004 was the first year when our card expenditure exceeded our cash expenditure in the UK. More troubling though, is the high levels of consumer debt that now exist in this country with the average adult holding 2.4 credit cards and UK consumers having over 1 trillion pounds of consumer debt between them. The UK is the only country in the world where there are more credit cards than people, with over 67 million credit cards in circulation!
The Future
The last 40 years has changed our spending habit enormously, with cards beating both cash and cheques as our favoured payment method. The next 40 years will undoubtedly see cheques disappear and cash payments becoming even rarer as time goes on. Card security technology will continue to improve and will almost undoubtedly be based on biometric data rather than signatures or today's chip and pin. The banks' automated clearing service company (APACS) predict that all payments will be done in realtime after biometric data has proven our identity and presented us with our personal choice of preferred payment options. One thing seems certain. Credit cards - or their successors - are here to stay!
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